ISLAMABAD: NEPRA has approved a tariff of 9.3843 US cents per kilowatt hour for a tenure of 30 years for the 102MW Run-of-the-River Hydropower Plant Project – Gulpur, developed by M/S Mira Power Limited (MPL). The announcement by NEPRA to approve the Gulpur Hydropower Project tariff scheme is a major milestone that ends a long regulatory process involving repeated revisions due to currency changes over a number of years.
Explanation of Gulpur Hydropower Project Tariff Structure
Under NEPRA’s determination, the generation tariff rate for the initial 12 years of operations will be fixed at Rs 17.3751 per kWh. It will then fall to Rs 8.2686 per kWh for the subsequent 18 years of operations, making the average levelized tariff for the entire 30 years at Rs 14.8507 per kWh. The reference tariff has been determined on the basis of net contracted capacity of 100.98 MW and net annual energy generation of 474.996 GWh.
As per terms agreed upon for this BOT deal, the tariffs would be payable for a tenure of 30 years, beginning from COD. The entire debt would be repaid within the first 12 years of operation, corresponding to the higher tariff level charged during this period.
Mira Power Ltd, a subsidiary company of Korea South-East Power Co. (KOEN), constructed the 102MW Gulpur Hydropower Plant in River Poonch within District Muzaffarabad, AJ&K. The project was implemented following the Power Generation Policy of 2002, issued by the Government of Pakistan. KOEN owns a 76% stake in the project, followed by DL Holdings with 18%, and Lotte Engineering & Construction owning the remaining 6%. The sponsors initially received the Letter of Intent from the Private Power & Infrastructure Board (PPIB) on March 12, 2005.
In a notice issued by NEPRA dated August 3, 2015, the authority allowed a rate of 9.0241 US cents per kilowatt hour (kWh). This is equal to Rs 9.4617 per kWh based on an exchange rate of Rs 104.85 per dollar. In this process, NEPRA had asked CPPA-G to file the modified PPA agreement for approval.
MPL, via CPPA-G, subsequently made a tariff modification request to amend NEPRA’s October 28, 2015, determination, claiming severe liquidity pressures. In particular, the firm claimed to be operating under a tariff indexed to a rate of Rs. 104.85/USD but was servicing its debts at much higher rates close to Rs. 150/USD. The company further sought assistance from NEPRA, claiming delays associated with adjusting for CODs.
Following this development, the National Electric Power Regulatory Authority (NEPRA), through its decision issued on March 9, 2021, approved interim revision of the EPC tariff based on the exchange rate of Rs 158.25/USD applicable on March 10, 2020 (COD). In this case, NEPRA adjusted all corresponding tariff components using indexation, pending their eventual finalization on the date of commercial operation. Moreover, certain force majeure events had caused delays in construction activity and cost overrun claims that required resolution through several stages of the regulatory process.
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In an addendum to the decision issued by Member (Tariff & Finance) Amina Ahmed stated that the application for revision of COD rates which was made way back in March 2022 faced an unreasonable delay exceeding three years. The member also disagreed with the majority decision whereby exchange rate fluctuations were not considered in respect of the total EPC costs stating that NEPRA’s rationale behind its decision to pay local costs in PKR and exclude exchange rate fluctuation is contradictory to earlier practice.
However, according to her remarks contained in a recent note, she disagrees with this overall rationale for excluding exchange rate fluctuations from EPC cost calculations since NEPRA itself has approved such exclusions in numerous previous tariff cases using different technology types.
Ahmed concurred with keeping the civil works cost in PKR based on the approved methodology for the same under the reference tariff. However, the electrical and mechanical (E&M) component of the EPC cost totaling $9.55 million did not receive an allowance for any exchange rate adjustment. According to her, the mentioned amount was eligible for indexation since it was incurred in foreign currency, not quoted in PKR within the reference tariff, and excluded from the approved escalation formula.
Ahmed referred to the previous Laraib Energy case, wherein onshore EPC cost not eligible for any escalation was indexed as USD-denominated costs subject to exchange rate variation. "There is no reasonable ground to disallow exchange rate variation for Mira Power on this particular element," she concluded.